Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

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crswvc
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Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

Post by crswvc »

With the market down, everyone seems to buying more equities. However, I don't have any extra cash just hanging out as my extra cash gets invested as it arrives. Time in the market.
Should I be using this market crash to borrow money (HELOC, margin loan, credit card advance) and then buy equities and use the proceeds to payback the loan? If so should I buy VOO or VSS?
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by LadyGeek »

I retitled the thread. Never, ever borrow money to "invest" in anything. Stocks can and will lose value. What "others" do does not apply to your situation.

Instead, why don't you post your portfolio here using this format: Asking Portfolio Questions It will make you think about the "big picture" while giving us the information we need to point you in the right direction.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by livesoft »

I would not borrow to buy. I have a margin account and I am not using any margin to buy.

Do you have any bond funds?
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by Lafder »

crswvc,
Are you investing in your retirement account on an ongoing basis ? If so you are regularly buying at these prices.

Do you have a stock and bond asset allocation? If so, which I think you should, if your AA deviates by more than 5% from your desired AA you can sell bonds and buy stocks "low".

In other words, keep investing on a regular basis, and rebalance when needed.

No you should not borrow to invest, I agree with that answer.

You are doing a great job of not panicking that stocks have dropped, and looking for buying opportunities instead!

lafder
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Aptenodytes
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by Aptenodytes »

Before trying to derive implications from your premises, I'd do some fact checking. I doubt that everyone is buying more equities; in fact I'm sure that's false. None of my rebalance bands have been triggered since Christmas. And I doubt that "this market crash" exists. You are free to predict a crash in the future, but I can't see calling what has happened this January a crash.

So perhaps you don't need to do anything, regardless of how you might answer the hypothetical.
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crswvc
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by crswvc »

LadyGeek wrote:Instead, why don't you post your portfolio here using this format: Asking Portfolio Questions It will make you think about the "big picture" while giving us the information we need to point you in the right direction.
OK fine, here it is.

Here is my portfolio:

Emergency funds: Yes (4 months)
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 35%
State of Residence: CA
Age: Him: 40 Her: 50
Desired Asset allocation: Taxable: 60% stocks / 40% bonds - His 401k: 90% stocks / 10% bonds (Matching 2040 target retirement)
Desired International allocation: ?

Portfolio size: Mid-six-figures

Current assets:
Taxable
0.00% Cash - Any extra cash that comes my way gets added to VSMGX (see next line) right away
15.07% VSMGX (Vanguard LifeStrategy Moderate Growth Fund Investor Shares)
27.26% Employer Stock
0.43% Other stock
1.95% Betterment (60% stock / 40% bond)

His – Roth IRA – Vanguard
2.04% VFORX (Vanguard Target Retirement 2040 Fund Investor Shares)
0.98% VIMSX (Vanguard Mid-Cap Index Fund Investor Shares)
4.08% Lending club

His 401k – Pre tax
2.97% VBMPX (Vanguard Total Bond Market Idx Instl Pls)
26.73% No Ticker (Vanguard Employee Benefit Index-Client A)

His 401k – Post tax - I just started contributing to this
0.04% VBMPX (Vanguard Total Bond Market Idx Instl Pls)
0.34% No Ticker (Vanguard Employee Benefit Index-Client A)

Her Roth IRA – Vanguard
3.15% VTHRX (Vanguard Target Retirement 2030 Fund)

Her 403(b)7 – Vanguard
10.92% VTHRX (Vanguard Target Retirement 2030 Fund)

Her 457b – Fidelity
4.05% FFNOX (FID FOUR IN ONE IDX)

100.00%


Contributions:
His:
$18,000 401k Pre tax
$15,000 401k Post tax
$5,500 Roth IRA
Her: (Not working at the moment)
$6,600 Roth IRA


Available funds

Funds available in his 401(k)
LifePath Index Retirement O - 0.08%
Vanguard Prime Money Market Admiral (VMRXX) - 0.10%
Wells Fargo Stable Return Fund Q (N/A) - ? - Not listed
Vanguard Total Bond Market Idx Instl Pls (VBMPX) - 0.05%
Neuberger Berman High Income Bond R6 (NRHIX) - 0.62%
Loomis Sayles Core Plus Bond Y (NERYX) - 0.54%
Vanguard Windsor II Fund - Admiral (VWNAX) - 0.28%
Vanguard Employee Benefit Index-Client A (N/A) - ? - Not listed
Fidelity Contrafund (FCNTX) - 0.64%
Wells Fargo Discovery Instl (WFDSX) - 0.87%
Vanguard Extended Market Idx InstlPlus (VEMPX) - 0.06%
Nuveen NWQ Small-Cap Value I (NSCRX) - 1.17%
Vanguard Total Intl Stock Idx InstlPls International Funds (VTPSX) - 0.10%
Dodge & Cox International Stock International Funds (DODFX) - 0.64%
Voya Clarion Glbl Real Estate Sec Trst 2 (N/A)

Funds available in her 403b
Any vanguard fund

Funds available in her 457b
Any Fidelity fund


Questions:
1. Does this look OK?

2. What should I do during this downturn?
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Aptenodytes
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by Aptenodytes »

It sounds like you haven't as a couple yet decided whether to manage your portfolios as a whole or separately. At least, you don't list a target AA for the combined portfolio. Logically, it is very difficult if you don't manage the portfolios as a whole, because a rational investor will take into account the portfolio of their spouse when making decisions.

Also, the question of where to place funds across accounts is different than deciding on how to manage the risk-return relationship through asset allocation. Hence when you think about your desired AA you should be thinking about the AA of your portfolio as a whole (whether the whole is all of your accounts or the combination of you and your wife's). Having settled on an AA, you can then make decisions about how to best locate specific assets across your different accounts.

Most people would consider any single stock of sizable magnitude more of a speculation than an investment. If for whatever reason you are going to stick with that holding and you are looking for changes to the AA, then thinking about asset categories that might have some chance of being out of phase with that single stock would make sense. In practice that may be hard to do any other route than lowering your stock percentage as a whole, but I doubt you would want to do that -- my guess is you are risk-tolerant and happy to keep speculating on that company stock, and that could be fine in your case.

Do you know what your current AA is? If you are uncertain what the best international percentage is, I think the dominant advice tends to converge on the 25-50% range, and I can't imagine any evidence-based rationale for going outside that range. I also think that if you wanted to go under 25% for whatever personal reasons you might have, nobody would give you a very hard time for it.

But I'll repeat that there's no logical reason at all to think that the events of the last two weeks should impel you to quick action on any of this.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by livesoft »

You are already buying equities because you have those LifeStrategy, TargetRetirement, and Four-in-One fund. The managers of those funds are keeping your asset allocation for you. I don't think you really need to borrow at all to buy equities. It is already happening for you.
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crswvc
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by crswvc »

Aptenodytes wrote:Do you know what your current AA is?
Basically:
Cash: 1
U.S. Stocks: 72
Foreign Stocks: 10
Bonds: 18

Now is this the ideal portfolio? I have no idea, which is why I am on this site.
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crswvc
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by crswvc »

livesoft wrote:You are already buying equities because you have those LifeStrategy, TargetRetirement, and Four-in-One fund. The managers of those funds are keeping your asset allocation for you. I don't think you really need to borrow at all to buy equities. It is already happening for you.
Thanks livesoft!
I always enjoy your insight; what got me started thinking was when you validated the EM Bottom thread by going all in on EM with your wife's IRA account contribution.
Since I don't have any spare cash right now, I thought I could borrow some and copy your EM move!
Perhaps I need to stop reading this site ...
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crswvc
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by crswvc »

Why did I ask for VOO / VSS then?
I already have a bunch of s&p 500 so I know where that goes.
I have a midcap tilt already in ROTH IRA.
Time to start a small cap tilt then ... or just keep with s&p 500
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by livesoft »

crswvc wrote:I always enjoy your insight; what got me started thinking was when you validated the EM Bottom thread by going all in on EM with your wife's IRA account contribution.
Uh-oh! You have to know that we already own lots of shares of EM small cap that is always losing money, so "going all in" is a bit of misnomer. For us, it is a minor rebalancing step. And it certainly doesn't mean that there is a bottom here.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by Daryl »

Borrowing to invest can be very beneficial if the actual returns of your lowest performing investment exceeds your financing costs.

Financing can come from a variety of sources. I have an account with TD Ameritrade and they offer margin rates from 6.5% to 9.25% (depending on balance). Interactive Brokers offers better margin rates (under 2%). Even at that rate, you'd basically be breaking even (when compared to the expected return of the bond portion of your 60/40 portfolio). You'd be better off "self-financing" by selling bonds and buying equities.

Things start to get a little more interesting when you look at financing options that cost less than 1%. Various financial directives can provide cheap financing and increased leverage. This can be both good and bad. I bought an emini S&P 500 futures contract near the 52-week high. The initial margin requirement was about $6,000. The market value of that contract has decreased by about $10,000. To meet the overnight margin requirements I need to keep some excess cash in that account (earning basically 0.0% interest). If I don't do that I could receive a margin call. In that case, I would be forced to liquidate some investments at whatever the current market value is at that time. Buying high and selling low is a terrible way to make money, especially if you combine that with any financing costs!

The highest interest rate that I'm paying on any of my debt (investment related or other) is 2.25% fixed for the next decade. That also happens to be tax deductible. Your situation may be different.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

Post by LadyGeek »

I corrected the thread to title to clarify that VSS is a small-cap stock fund.

- Vanguard S&P 500 ETF (VOO)
-Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

Post by grabiner »

You have no need to borrow money. If you want to hold more stocks, you can sell bonds to buy stocks, which is a better deal than borrowing.

For example, you could replace some of the LifeStrategy Moderate Growth with LifeStrategy Growth, or move from the 2030 funds to the 2040 funds.

However, I don't suggest doing this until you have a plan in order, particularly in your taxable account. If you sell something in your taxable account, you will pay tax on the capital gains, so that sale should only be done if you know it is right for your portfolio.

You are in a very high tax bracket, and thus the LifeStrategy fund should not be in your taxable account; you pay tax at your full tax rate on the bonds which are 40% of the fund. If you do hold bonds in your taxable account, it makes more sense to use CA municipal bonds, which have a higher after-tax yield than taxable bonds of comparable risk.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

Post by abuss368 »

crswvc wrote:With the market down, everyone seems to buying more equities. However, I don't have any extra cash just hanging out as my extra cash gets invested as it arrives. Time in the market.
Should I be using this market crash to borrow money (HELOC, margin loan, credit card advance) and then buy equities and use the proceeds to payback the loan? If so should I buy VOO or VSS?
Hi crswvc,

Welcome to the best financial forum on the internet!

I would seriously caution any investor from investing on margin. Jack Bogle has said that he believes this is very risky and foolish. Should the market continue to decline and the margin loan is recalled or assets are sold, you may be in a very bad financial position.

Continue to stay the course and invest over time as you have funds.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by sharukh »

Daryl wrote: Sun Jan 17, 2016 7:07 am
The highest interest rate that I'm paying on any of my debt (investment related or other) is 2.25% fixed for the next decade. That also happens to be tax deductible. Your situation may be different.
Hi,

Can you please tell how to get fixed interest rates for a decade ?
Is it by shorting 10 year Treasury futures? If so how do you slowly ramp down?

Thank you
secondopinion
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by secondopinion »

sharukh wrote: Fri Feb 03, 2023 4:28 pm
Daryl wrote: Sun Jan 17, 2016 7:07 am
The highest interest rate that I'm paying on any of my debt (investment related or other) is 2.25% fixed for the next decade. That also happens to be tax deductible. Your situation may be different.
Hi,

Can you please tell how to get fixed interest rates for a decade ?
Is it by shorting 10 year Treasury futures? If so how do you slowly ramp down?

Thank you
This might be better asked in a different thread rather than an old one. It is a good question, though.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us]

Post by sharukh »

secondopinion wrote: Fri Feb 03, 2023 4:47 pm
sharukh wrote: Fri Feb 03, 2023 4:28 pm
Daryl wrote: Sun Jan 17, 2016 7:07 am
The highest interest rate that I'm paying on any of my debt (investment related or other) is 2.25% fixed for the next decade. That also happens to be tax deductible. Your situation may be different.
Hi,

Can you please tell how to get fixed interest rates for a decade ?
Is it by shorting 10 year Treasury futures? If so how do you slowly ramp down?

Thank you
This might be better asked in a different thread rather than an old one. It is a good question, though.
I tried, couldn't get a definitive answer. I shared in that thread my half baked solution.

viewtopic.php?p=7080918#p7080918
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Re: Buy VOO / VSS now? [Borrow to invest, Vanguard 500 / FTSE All world ex-us small caps]

Post by Ed 2 »

crswvc wrote: Sat Jan 16, 2016 8:16 pm With the market down, everyone seems to buying more equities. However, I don't have any extra cash just hanging out as my extra cash gets invested as it arrives. Time in the market.
Should I be using this market crash to borrow money (HELOC, margin loan, credit card advance) and then buy equities and use the proceeds to payback the loan? If so should I buy VOO or VSS?
My rule: never use borrowed money to invest in equity.
Other than that , if you asked me “ is it good time to put big chunk of cash into VOO” back in December of 2022 , I would say yes .
Why no one was asking this back in December and October ??? That’s when I personally rebalanced all my balanced fund in 401 into VOO 100% .
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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